Despite war burden, Iraq's economy picks up as more oil flows. INTERVIEW WITH FINANCE MINISTER

Iranian military pressures on Iraq remain strong. But the financial position of the war-torn nation has improved in the last year, according to Mukhalif Al Hadithi, Iraq's new finance minister. ``I cannot tell you it is easy,'' said Mr. Al Hadathi in an interview. ``But we are doing our best to minimize the cost of this damn war. Our economy is doing fine.''

What has helped greatly is the completion of a pipeline system stretching from the oil fields near Basra in the southeast to the Kirkuk oil fields in the northeast. From there, an existing, expanded pipeline can carry the oil to Ceyhan in Turkey. Completed July 29, the new pipeline moves 500,000 barrels per day.

The American-educated official says Iraq is now exporting 2.2 million barrels per day. That's a huge increase from the 750,000 b.p.d. it managed to export in 1982 after Iran first destroyed and later occupied Iraq's Gulf port of Faw. It had been shipping 3 million b.p.d. from that port. Iran also prompted Syria to shut down a 1 million b.p.d. pipeline through its territory.

Iraq, according to the Middle East Economic Survey, is actually pumping 2.7 million b.p.d., almost twice the quota of 1.54 million b.p.d. set for it by the Organization of Petroleum Exporting Countries. Iraq insists that its quota should be 2.369 million b.p.d., equaling Iran's OPEC quota.

Whatever the actual flow, the additional revenues have enabled the economy to work in a smoother way than before, Al Hadathi says.

Reports from Iraq say the problems of a war economy remain: shortages, power cuts, a thriving black market.

Al Hadathi, who was shifted from the Planning Ministry to the Finance Ministry in September, admits that imports, once running at $21 billion, have been cut to less than half that amount. But he says Iraq is able to import ``necessary goods and services'' for consumers.

The nation must also buy war supplies and deal with a national foreign debt estimated at $60 billion.

Last month Saudi Arabia approved the passage through its territory of another Iraqi pipeline that will carry 1.5 million b.p.d. to Yanbu on the Red Sea. The Saudis had delayed giving an okay to the pipeline, fearing it might provoke Iran. However, when Iranians disrupted the annual Muslim pilgrimage to Mecca, causing hundreds of deaths, the Saudis changed their minds and OK'd the pipeline.

That pipeline, when completed in early 1989 at a cost of about $1 million per kilometer, will pay for itself in a few months, Al Hadathi says. A contract has already been let. When this pipeline is complete, Iraq would have an export capacity of 3.5 million b.p.d., somewhat short of its 4 million b.p.d. capacity before its war with Iran broke out eight years ago.

Al Hadathi maintains that Iraq's oil reserves will prove eventually to be larger than those of Saudi Arabia. ``We will be staying with Saudi Arabia in the long-run export of oil,'' he says.

The finance minister also spoke about the bold moves by Iraqi President Saddam Hussein to revive Iraq's moribund private sector. Under Baath Party rule since 1968, Iraq's government has imposed a heavy socialist hand on the economy.

Starting last year, though, the government has sold off dozens of fairly small state enterprises in the agricultural and service sectors. These include poultry farms, dairies, apiaries, supermarkets, gasoline stations, repair shops, and some bus companies.

Al Hadathi says he expects these privatized firms to be run more efficiently than under government ownership. The government especially hopes the shift will boost farm output, reducing the need for imported food. Agriculture still occupies some 30 percent of Iraq's population of some 16 million.

As a result of this effort, the number of civil servants has been decreasing, Al Hadathi says.

Speaking of the government's efforts to stimulate free enterprise, Al Hadathi said: ``It takes time to change the mentality.''

Though foreign visitors to Basra estimate perhaps half or more of the city's 1 million inhabitants have fled Iranian shelling, Al Hadathi says the refugees ``really did not create problems for the Iraqi government'' and that ``most of them'' have returned.

Al Hadathi spoke of his hope that the recent United Nations efforts to bring about peace with Iran will succeed. Then, he says, many development projects that have been stopped by the war could be resumed.

``We would like everyone to come in and help with development,'' he says.

Peace could also bring about more democracy in Iraq, the finance minister said. He noted that President Hussein told him when he took his new job that he is ``much concerned about democracy. ... He thinks it is healthy.''

Speaking of the government's intention to move toward democracy, Al Hadathi concluded: ``The war is not helpful.''